Excerpted From: Lynnise Phillips Pantin, Financial Inclusion, Cryptocurrency, and Afrofuturism, 118 Northwestern University Law Review 621 (2023) (297 Footnotes) (Full Document)


LynnisePhillips.jpegIn January 2022, New York City's newly elected Mayor Eric Adams announced that he would automatically convert his first three paychecks into Bitcoin and Ethereum. The mayor of the nation's largest city was promoting cryptocurrency, a new form of currency that many had previously dismissed as a Ponzi scheme. Accompanying the mayor's announcement was his hope that the city would become “the center of the cryptocurrency industry.” His declaration reflected the increasing acceptance of digital currencies, which have generally been considered to be highly volatile financial products. Perhaps Mayor Adams's announcement signaled to the world that the age of cryptocurrency is here to stay.

Mayor Adams spread the gospel of cryptocurrency, and Black cryptocurrency adopters, wary of government-regulated markets and financial institutions, embraced the decentralized nature of digital currency. Cryptocurrency is digital currency. Cryptocurrency transactions are verified, and their records are maintained by a decentralized system that uses cryptography to securely transmit digital messages, rather than a centralized authority. Blockchain technology makes the use of cryptocurrency possible because the blockchain creates a digital public ledger of all associated transactions. The cryptocurrency market is a decentralized financial system built on this distributed ledger or blockchain technology. The blockchain contributes to cryptocurrency's appeal because transactions are ostensibly transparent and immutable. Cryptocurrency is not backed by the federal government or any central authority. Recognizing that government-supported pathways to wealth have been consistently accessible to mostly white Americans, Black cryptocurrency adopters have embraced cryptocurrency as a vehicle to create both greater agency and prosperity. They claim that the decentralized nature of the cryptocurrency market lends itself to a democratic, participatory, and inclusive ecosystem in contrast to the central financial system that has excluded and marginalized Black people.

Young Black entrepreneurs and technologists have jumped into the cryptocurrency space enthusiastically. According to the Biden Administration, about “16 percent of adult Americans--approximately 40 million people--have invested in, traded, or used cryptocurrencies.” were more than twice as likely as white Americans to purchase cryptocurrency as their first investment in any financial market. To this community, blockchain technology is a disruptor of centuries-long oppression because the blockchain eliminates the role of centralized entities that have facilitated the community's exclusion from the traditional financial markets. But despite the excitement surrounding cryptocurrency as a path to financial inclusivity, this Article argues that cryptocurrencies are unlikely to repair the harms caused by systemic racism and financial exclusion. Only an ambitious and transformative governmental intervention could hope to remedy those harms, such as implementing an Afrofuturist framework into the financial markets.

Why are some young Black people drawn to these relatively new and risky assets? Their investment is, in part, a reaction to their historic and systemic exclusion. Financial exclusion has had the effect of underdeveloping and undervaluing the Black community. For decades, Black people have faced multiple, dynamic forms of systemic discrimination within financial institutions. As a result of discriminatory practices, Black people were prevented from full participation in the U.S. economy, leading to a notably growing racial wealth disparity. When measuring economic indicators, including income, homeownership, home equity, investments, or wealth, Black consumers are consistently at the very bottom of all economic metrics. The policies of exclusion at the hands of the central financial systems have hampered the ability for Black people to build wealth and pursue economic opportunities.

Based on past systemic racism and discrimination, it is understandable that a marginalized Black community would embrace this new decentralized financial system made possible by blockchain technology. Arguably, such technology has the potential to avoid the inequities and discrimination that were built into central finance because the decentralized structure lends itself to increased equity and freedom from discrimination. For example, cryptocurrency enables users to bypass traditional central banking systems when applying for and receiving a loan by using their cryptocurrency as collateral and connecting their digital “wallets” to lending platforms.

Although credit checks, criminal background checks, or screenings are not needed for cryptocurrency transactions, cryptocurrency exchanges are increasingly following “Know Your Customer” (KYC) protocol. In addition, cryptocurrency exchanges typically require a linked bank account. Yet the idea of bypassing the gatekeeping mechanisms of traditional financial institutions remains compelling.

The legacy of financial exclusion has also bred a lack of trust in traditional finance institutions and systems. This lack of trust also helps to explain the appeal of the decentralized cryptocurrency market. At the same time, the value of cryptocurrency investments plunged in the last quarter of 2022, and various exchanges collapsed. These losses in the cryptocurrency market have significant consequences for those relying on that market as a path to financial security. Black Americans' relatively high “exposure to cryptocurrencies has left them more vulnerable to the financial downturn,” as they have less wealth to absorb the financial shock.

Black technologists have been among the first to adopt cryptocurrencies, and many have done so in the name of racial equity. The high rate of participation in cryptocurrency by young Black people is not so much a cure for systemic racism in the financial industry as it is a symptom. It is a form of “predatory inclusion.” Predatory inclusion is a term used to describe how Black homebuyers were granted access to conventional real estate products and mortgage financing after the passage of the Fair Housing Act, but on more expensive and comparatively unequal terms, as opposed to the products offered in the suburbs. Those unfair terms were justified because of poverty and dilapidation in urban areas. In the same way that marginalized homebuyers were vulnerable to unfair mortgage terms, marginalized communities are vulnerable to the appeal of cryptocurrencies.

The cryptocurrency market may hold some potential for a few to build wealth, but the reality of the market does not rise to the ideal of a democratic, decentralized financial utopia. It is a risky investment for marginalized communities rather than an escape from the pathologies of the traditional financial markets.

Little scholarly attention has been given to the demographics and motivations of early cryptocurrency adopters or to the racial dynamics in the cryptocurrency space. This Article gives the intersection of cryptocurrency and racial dynamics much needed attention and examines blockchain technology's superficial promise to curtail exclusionary practices of the current centralized financial system. It analyzes Black people's embrace of the cryptocurrency market and related implications. As cryptocurrency policy is shaped, the historic effects of banking and financial policy undergirded by structural racism looms. At the same time, some scholars imagine and create a future where prescriptive theories of change have come to pass. Through the lens of Afrofuturism, this Article uses a futures analysis of cryptocurrency to take on the task of examining how to implement financial inclusion in a system grounded in exclusion.

This Article proceeds in three parts. Part I outlines the history of economic exclusion, chronicling the ways Black people have been systematically prevented from building intergenerational wealth. This Part documents how the legacy of financial exclusion left Black communities distrustful of financial institutions and how, as a result, these communities developed an alternative or underground economy on the margins of the financial system. This Part also describes how financial technology and the use of algorithms in the financial system exacerbated this distrust. Part II examines the cryptocurrency movement and the implications of the decentralized market. This Part describes how the theory of cryptocurrency responds to the financially exclusionary environment both philosophically and practically. It also analyzes the challenges and opportunities of government and private market strategies to cryptocurrency. Lastly, Part III uses an Afrofuturist framework to develop a theory and path to financial inclusion in the cryptocurrency ecosystem, as well as the current traditional financial system.

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Cryptocurrency is often characterized in hyperbolic and extreme tones. Either it is digital gold or digital coal; either it is a tool for wealth creation or a risky investment vehicle that binds its users to destitution. This Article examines some of the reasons communities of color eagerly jumped into the cryptocurrency ecosystem. The Black community embraced cryptocurrencies because decentralization carried the promise of racial equity without the exclusionary practices that have prevented access to financial resources and the ability to build wealth among the Black community. And yet, this Article demonstrates the reality that cryptocurrency is distributed as unequally as more traditional types of capital. As this new financial system grows in popularity, Black people are being marketed the opportunity to change their wealth trajectories, but information about risk is less readily available. Recently, the cryptocurrency market has crashed and investors have taken heavy losses. The idea that risky cryptocurrencies can be a driver for racial equity and Black wealth has been challenged and arguably debunked by the volatile state of the market. Participation as a path to liberation in the cryptocurrency space by traditionally marginalized people is as dangerous and risky as the cryptocurrency market itself.

The decentralized nature of the cryptocurrency market does not decentralize wealth. Instead, this Article determines that viewing cryptocurrency as a financial solution for marginalized Black people is misplaced. The abstract philosophy of an autonomous, decentralized system that flaunts the global financial markets as a path towards liberation, freedom, and financial wealth is flawed, as the current distribution of cryptocurrency replicates disparate access to traditional forms of capital. Financial regulation that is just and fair would account for racial harms and traumas. In reimagining a future of freedom from those harms, regulators should seek guidance on developing inclusive strategies for the traditional financial system.

Regulation can be used to think about how both private and public actors might seize an opportunity for financial policies that consider the myriad social and economic factors animating the conversation around financial inclusion. The government must engage in Afrofuturist-informed approaches to design policy around financial inclusion and actively prevent past harms of intentional, systemic discrimination and financial exclusion. An Afrofuturist approach to financial inclusion means a move toward a future of inclusion where Black people and all marginalized people are central in all facets of the financial system.